(New York)

For the last year there has been increasing public frustration with tech companies. Gone is the general perception of Silicon Valley being inherently good, replaced with an angry skepticism over data leaks, election manipulation, and automation. Now there is tangible change in the air amongst investors too. Jana Partners, along with Calstsrs, have just begged Apple to investigate the iPhone’s impact on kids, and it seems representative of a larger trend against the tech industry. There is also rumbling about regulation on the fringes, and increasing skepticism about the social impact of Amazon, in particular its effect on Main Street, jobs, and inflation (although the general public NEVER misses inflation).

FINSUM: We think there is a big change brewing for the tech industry, and that the next decade will likely be a lot more difficult than the last.

(New York)

The big bond gurus of Wall Street, Bill Gross and Jeffrey Gundlach, both struck fear in the hearts of bond investors yesterday, saying that the recent Treasury sell-off confirmed that a bond bear market had begun. However, Morgan Stanley is now pushing back against that assertion, saying that Treasuries are still offering value and should be fine. “This isn’t the bear market you’re looking for” says Morgan Stanley. MS says that the Fed is not likely to react sharply to inflation and that the Chinese aren’t going to stop buying Treasuries outright, both factors which will support the market.

FINSUM: While there are some headwinds related to possible tightening, on the whole there are a number of fundamentals which seem likely to continue to support both Treasuries and credit (like demographics—we know we often mention this point).

(New York)

The big discount brokerages might be poised for an ugly PR nightmare. In an expose type article, the WSJ has highlighted how big discount brokers like TD Ameritrade and Fidelity hide the fact that their account managers have conflicts of interest. Such managers often tell clients they don’t get paid on commission and therefore don’t have conflicts of interest. Yet in reality they do have incentive pay that biases their advice to steer clients into more expensive products. One former manager from Fidelity comments that “You’re omitting certain facts that the client would probably appreciate understanding before you launch into a sales pitch on why you think this product is better”.

FINSUM: This is definitely something that those who use discount brokerages should be aware of. It remains to be seen what the fallout from this expose might be.

(New York)

Banks are soon to be reporting their fourth quarter earnings, and Barron’s has put out an article advising investors on which stocks to buy ahead of the release. JPMorgan will report first and its numbers will have big implications for the sector. The piece cites analysts and says that Wells Fargo, Zion’s Bank, and Suntrust Bank look likely to do well, while investors should be underweight Goldman Sachs, CIT Group, and US Bancorp.

FINSUM: The tax package is going to be an interesting part of bank earnings both this earnings season and next, as some banks may do unusual tax maneuvers.

(New York)

If you are sitting on the sidelines, or want to sit on the sidelines but fear missing out on gains, then you may be exactly representative of the market. Bloomberg argues that part of what is fueling the self-perpetuating cycle of market gains right now is what it calls FOMO, or fear of missing out. At present, the fear of missing gains seems to have eclipsed all downside fears, which could be a sign of euphoria, or part of what Wall Street terms a “melt up”. Bloomberg argues that the really scary part of the current melt up is that it doesn’t really have to do with the economy, it is just psychologically driven.

FINSUM: The market is valued so richly that one can’t help but look over their shoulder, but the doom and gloom stories are still getting old. That said, the CAPE ratio (you know, Shiller’s ratio), is the highest it has EVER been (yes, greater than 1929).

(New York)

Bond gurus across Wall Street were calling it the beginning of the bond bear market. Treasuries had dropped significantly, with yields holding over 2.5%. However, the selloff halted yesterday as reports of Chinese plans to stop buying Treasuries were reported as possibly false. A commentator from BNY Mellon explains the situation best, saying “Whether the news of Chinese withdrawal was fake or not, the Treasury market is likely to continue to feel a little fragile, but the fact remains that the hunt for yield goes on and with no real signs of inflation yet and improving growth, there are still no real sellers out there”.

FINSUM: We think that is a very eloquent summary of the current situation. We do not think it is time to be bearish yet.

(Seoul)

We have been warning that one of the big risks for bitcoin is the threat of regulation, and today that prognostication is looking true. The cryptocurrency plunged yesterday after South Korean regulators took steps to shut down the trading of bitcoin on the country’s exchanges. The government views trading of the currency as akin to gambling. Bitcoin fell as much as a quarter in South Korea and over 13% on global exchanges. It is now trading between $12,000 and $13,000.

FINSUM: Bitcoin is an interesting asset class, but because it operates in a gray area of legality, it is fraught with extreme regulatory risk.

(Washington)

If there was ever exciting news in the fiduciary rule saga, this is it. The Wall Street Journal is reporting that the SEC will deliver a proposed comprehensive fiduciary rule in the second quarter of this year. The challenge of delivering a rule governing all accounts will be very challenging however, even as the SEC says it is fast-tracking development, as it will be bombarded from both sides. One of the directors from the Consumer Federation of America puts it bluntly, “It’s difficult to see how they can come up with a solution that does not land them in court … If they propose a rule we like, industry will sue them. If they give industry a disclosure-based best interest standard that they want, we’ll sue them”.

FINSUM: The SEC is in a tough position, but them coming up with a proposal for a comprehensive rule would be a step in the right direction.

(New York)

Some of the biggest names in bonds are making a bold proclamation that all investors need to hear—that the 30-year bond bull market is over. Both Bill Gross and Jeffrey Gundlach are saying that with Treasury yields rising—currently sitting about 2.5% on ten-years—the bond market has entered a new phase. Gundlach says we are entering an era of “quantitative tightening”, which will cause losses for bonds. Gross says the bear market was confirmed when 5y and 10y Treasuries crossed 25y trend lines recently.

FINSUM: We may very well be entering an era of tightening, but that does not mean it will necessary be a brutal bear market, especially with the demographically-driven demand for bonds. Additionally, with the economy going very well, a recession could be coming, which would ease the tightening.

(New York)

Tech has been the undisputed leader of the rally over the last several months, but there might be cracks in its armor that investors need to be aware of. Internal price momentum has started to fade in the sector, and it looks as though it might be ready to hand over leadership of the market. According to one equity analyst, “Relative performance has diverged on the sector’s new high, while semiconductors and small caps have failed to confirm as well”.

FINSUM: No one wants to hear this, but with valuations so high, it might well be true. The other big risk is regulation, but given good business momentum in the sector, there could still be some room to run.